Amazon

Why Amazon Is Paying $1 Billion to Help People Watch Video Games

For months Twitch, the video-game streaming service, was supposedly putting the finishing touches on a deal with Google (GOOG). Now Twitch’s suitor has switched, and a deal has been reached with Amazon (AMZN). The $970 million cash deal is the biggest acquisition in Amazon’s history. In a statement, Twitch’s chief executive said the company would continue to operate independently.

There are a few reasons Amazon would want Twitch, some of them Amazon-specific, others more general. First, a primer on Twitch. It’s a website on which people watch other people play video games. Some of the people playing are experts; others aren’t even all that good. To understand why Amazon would pay for a website such as this, you have to accept one fact: People like watching other people play video games. This consistently baffles many non-gamers, but it’s true.

Twitch, founded in 2011 as part of now-defunct Justin.tv, has 55 million unique monthly users, and 7 million people log onto the website each day. While Web entertainment is reputedly all about short attention spans, Twitch users stick around for nearly two hours per day on average. Any company that attracts such deep levels of engagement is going to appeal to Silicon Valley’s acquirers, not least because advertising to those people could be very lucrative. And Amazon is increasingly interested in building its advertising business.

The company is also more interested in gaming than its competitors in the digital media industry. Amazon started its own gaming studio in 2012 and bolstered these development capabilities when it bought Double Helix, a 75-person game developer, earlier this year. When Amazon released Fire TV, its challenge to Apple TV (AAPL), it also introduced a game controller, in addition to a standard remote. Its own studios have been launching exclusives for Amazon’s game-ready devices, which also include a smartphone and a tablet. The company has yet to hit it big in gaming, says Brian Blau, an analyst with Gartner. “Their investment in Twitch would totally eclipse everything they’ve done with gaming,” he says.

It might be better to see Twitch not as the next step in Amazon’s plan to become a gaming empire, but as its latest move to get hold of video content that people want to watch. Twitch is a place where people watch video games, not where they play them. That happens on PCs, Playstations (SNE), and XBoxes (MSFT). In that sense, Twitch is an addition to Amazon’s streaming video business.

There are some interesting differences between Twitch and, say, an Amazon-produced show such as Alpha House. The main one: Twitch broadcasts feature a strong level of interaction among viewers via running chats streamed live. Often the broadcaster interacts directly with the audience, too. This experience—watching while chatting—is how many television futurists think we’ll be watching our video in the future. It’s not yet clear that people want to watch everything in this manner. People who watch video games love it.

So Twitch gives Amazon an addition aspect to its video-game business and its digital video business, and it adds a unique social network to the company’s media plans. There’s a lot going on there. There’s also a very simple bonus. By buying Twitch, Amazon gets its hands on something Google evidently wanted and can’t have.